Vodafone (VOD.L) Stock Price

Vodafone Logo

BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

To say that Vodafone is a big telecommunications company would probably be a major understatement. The British conglomerate, with headquarters in Newbury, London and Berkshire, is the 4th largest telecommunications company in the world, as far as its number of customers is concerned.

The company served some 313 million customers as of 2018. It is a network owner in no fewer than 25 countries and it is present in 47. Vodafone’s corporate client coverage extends to some 150 countries.

Vodafone’s market capitalization was GBP 52.5 billion in 2016. Since then, it may have lost a little bit of steam in this regard, as its share price declined. The company is listed on the London Stock Exchange and it is a FTSE 100 constituent. Nasdaq has also listed Vodafone.

Despite its share-price woes, Vodafone has long been considered a great dividend stock. Stocks that pay lucrative dividends are usually very sound long-term investments. Sometimes it may happen however that dividends do not live up to investors’ expectations.

Some simple analysis can offer a much clearer picture in this regard though.

So, is Vodafone indeed a good dividend stock?

The nine-year payment history of the stock is certainly good. At 6.5%, the dividend yield is nothing to sneeze at either. Apparently, the company also buys back stock every now and then. In 2019, it has already bought back the equivalent of 1.3% of its market cap.

The first question when appraising a very attractive dividend, is to check whether the company can actually afford to pay it. After all, if it pays out more than it earns, the setup quickly becomes unsustainable.

In Vodafone’s case, the payout was 84% of the company’s cash flow in 2018. That is indeed extremely generous, albeit quite risky and on the very edge of sustainability. While theoretically such payouts can be sustained, they do not leave much room for maneuvering in case something unexpected happens.

It is also worth noting that the Vodafone group has reported a loss for the last 12 months.

With Vodafone stock, dividend volatility is very real problem indeed. The group has been paying out for the last 9 years, but it already had to cut dividends by 20%. That scenario will be repeated if the payouts become unsustainable. As shown above, the current setup may already be teetering on the edge in this regard.

In case of a dividend cut, investors lose revenues while watching the overall value of their investment dip too.

Despite the overall attractive nature of Vodafone stock, the truth is that the Earnings Per Share potential has been declining at a rate of about 46% per year. That says quite a bit about the growth potential of these dividends, mainly: that it is not really there.

Without growth, dividends will come under increasing pressure from inflation and costs.

The bottom line about Vodafone stock is that it is not really optimal for dividend investment at this point in time.

The factors that move the needle on share price are however numerous. An about-face in dividend earning potential may happen at any time.

BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.

Please join the Vodafone (VOD.L) Stock Price discussion